Sunday, April 10, 2011

What's the matter with PTFE prices?

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Like most processors and users alike, we too have been asking this question, repeatedly.

When PTFE prices first increased in 2010, it seemed like an inevitable price correction which, if viewed objectively, was understandable. PTFE resin prices had been steadily declining up to early 2010 and only in retrospect do we see how low they actually were. So when the initial hike was announced, it seemed justified and we went about our work gauging the impact it would have on margins and preparing to educate customers as to what we believed would be only a 5-10% price correction for them.

But in the one year following the initial hike, the continued increase in prices has been so steep that for possibly the first time, processors are actually asking themselves if PTFE is a business they should even be in. On the other side of the table, clients are seriously considering whether any alternate to PTFE could be used in their products.

If ever there was a suitable application of the term - a paradigm shift - it is in the PTFE industry post April 2010.

To quantify the extent of the price increase, let's look at some of the prices we were getting for our resins in 2010 and compare with the current rate (April 2011).


April 2010 - US$7.25 per Kg (US$3.28 per pound)
April 2011 - US$20.55 per Kg (US$9.35 per pound)

% increase: 185%


April 2010 - US$12.9 per Kg (US$5.85 per pound)
April 2011 - US$21.1 per Kg (US$9.6 per pound)

% increase - 64%


April 2010 - US$14.95 per Kg (US$6.8 per pound)
April 2011 - US$ 24.55 per Kg (US$11.15 per pound)

% increase - 64%

In most cases - at first attempt - the customer simply refuses to believe that any increase in pricing could be so drastic. The fact that there is little or no published data online regarding this makes it even more difficult to convince them!

After speaking with many industry insiders, suppliers and processors, we are only able to slowly piece together the effects causing this dramatic surge in PTFE prices. In most cases, we are inclined to believe what these sources say - although a more thorough study of the actual economics driving the PTFE pricing may be required to truly quantify the degree to which each factor influences the eventual rate.

To start with, let's look at the changes globally:

1) Fluorspar

This is the most common reason that resin suppliers offer up as soon as anyone questions the price of PTFE. Its a bit of a black box - because PTFE processors have never really delved into the details of resin manufacture and suppliers in turn, remain secretive about the process - which suits them in times like this!

Fluorspar is a mineral which, apart from being a critical raw material input in PTFE resin manufacture, is also vital in the manufacture of refrigerants, steel and pharmaceuticals. We are told that China controls most of the global fluorspar reserves and that owing to higher realisations in areas other than PTFE, the availability of fluorspar for PTFE resin manufacture has been severely constrained. This supply-demand gap for fluorspar is set to have triggered off the initial price increases in PTFE.

I'm actually speaking with some fluorspar manufacturers later to gauge exactly how much impact this supply-demand gap may realistically have on the pricing. Will add more on that later.

2) Plant shutdowns

It is highly likely that some of these may be rumours, but we have heard that the largest resin manufacturer in China shut down their plant for maintenance. Following this, some of the larger manufacturers in Europe also had forced maintenance shut downs and more recently, the earthquake in Japan has forced their largest PTFE resin manufacturer to remain closed for the next few months. There are also rumours that DuPont may be coming out of the compression moulded resins business - putting further pressure on supplies. All in all - we are told that this has resulted in about 1000 tonnes of global shortage in PTFE resins.

3) Greed... and the 'what else' factor

One of my more honest suppliers of compounded resins (so virgin PTFE is a raw material for him as well) offered the only remaining explanation for the continuing increase in prices - "greed". Another manufacturer of PTFE micro-powders seconded this and also suggested the "what else" implication of all this.

To explain this better - we need to look at PTFE as a polymer among a huge family of fluoroplastics and thermoplastics. As we have struggled to cope with the price increase we have also looked for alternatives to offer our customers - sometimes at their request, sometimes in desperation to keep the customer from going elsewhere.

In truth, there are only 2 polymers which somewhat compare across properties with PTFE. The first is UHMWPE - which, like PTFE has excellent wear resistance, dielectric strength and a low coefficient of friction. However, its inability to withstand high temperatures restricts its use in many industrial applications (PTFE can withstand up to 250 Degrees Celsius, whereas UHMWPE can only withstand up to 80 Degrees Celsius). UHMWPE is much cheaper than PTFE (especially now!) - but is still viewed as a sort of 'poor cousin' and despite our efforts, customers are not nearly as satisfied with it as they are with PTFE.

The other polymer is PEEK (better known by its trade name - Victrex). PEEK is again comparable to PTFE on all metrics (exceeding PTFE on properties such as tensile strength and temperature resistance) except coefficient of friction. However, PEEK resin currently sells at over 5 times the price of PTFE resin - making any discussion on substitution for PTFE pointless.

There are other polymers which may match up to PTFE on at least one or two of it's properties - but all that we have looked at are still more expensive than PTFE - even after the price increase! (a more in depth look into the properties of PTFE and the comparable properties and price of substitutes will be dealt with in a separate piece)

In our own experience - many clients have (grudgingly) accepted the new pricing we have offered because - by their own admission - they have no alternative materials which would suit their application.

It is my belief that at some point in the last year, resin manufacturers realised that a material as versatile and irreplaceable as PTFE was not selling for as much as it should. While the initial hike in pricing was due to a fundamental shift in the demand-supply equation, the more recent bursts seem more likely due to pressure testing by resin manufacturers to see what level they can hold prices at in the long run.

In India there has been one extra factor which has influenced PTFE resin prices. In 2010 the local resin companies lobbied for an anti-dumping duty on all Chinese an Russian resins. The duty - which still stands - called for a flat charge of US$3.25 per Kg - which allowed the Indian resin manufacturers to raise their prices immediately from US$7.25 to US$10.5 per Kg. The continued rise beyond this price is explained by the global shifts which 'coincidentally' occurred within weeks of the duty being levied.

The question that we're being forced to ask now is "what next?" In truth, there is still no visibility on when the PTFE resin prices will stabilise - which means processors are living from one day to the next, trying to convince clients in the hope that any orders they secure will hopefully be executed before the prices increase again. It is a very sticky situation and if rumours are to be believed, it will only stabilise by the end of 2011.

In case you wish to know more about PTFE, do visit us on: www.polyfluoroltd.com

6 comments:

  1. Being a ptfe sheet and gasket supplier this is one of the best explanations I've read, and I've read many of them. Here in the US we've seen more than double price increases on our sheet material since October of 2010.

    ReplyDelete
  2. This is a sample of what is to come. As China eliminates competition, they take full advantage of their market dominance. They take no prisoners.

    ReplyDelete
  3. Many of our sources in China are saying that about 30% of the processors of stock shapes (sheets and rods) have had to shut down due to the price increase.

    I am not sure this is purely a "China dominance" story - as if it were, you would probably see huge export tariffs on Fluorspar from China - which would make Fluorspar very expensive for other countries and ensure China was the only competitive market in PTFE (this has been seen in the pigments market - where exports of metals needed for pigments are heavily taxed by the Chinese government to ensure that the Chinese pigments industry is globally dominant).

    Since this has not happened, I believe that right now what we're seeing is pure economics at work, with Flurospar re-allocation at one end, and pressure testing of pricing at the other end.

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